Why industry differences matter to productivity

Higher education is central to national productivity – but different approaches will be needed for different economic sectors.

The vertical perspective

We know the issue: comparatively low levels of UK unit output growth since the end of the recession. We also know that the major contributions of higher education to the economy – such as research and graduates – are among the key ingredients of productivity.

Increasing levels of research and development and numbers of graduates are ‘horizontal’ policies that can help all economic sectors. But sectors differ, and another aspect of higher education’s contribution, and HEFCE’s work, is to help deliver ‘vertical’ support: addressing the different productivity needs of different sectors and types of businesses.

From manufacturing to services

Most developed economies now have much smaller shares of manufacturing than in the past. People in developed nations seek more services, including public services, and also more high value goods – such as smart health products or items of aesthetic value.

In 2013, the services sector made up 79 per cent of the UK economy, with manufacturing only 14 per cent. The shift from manufacturing to services holds for all developed countries. But the UK stands at an extreme end in terms of the rate of change in manufacturing (a decline from 41 per cent of the economy in 1948), and in our reliance on service exports.

The productivity needs for services and high value goods are different from those of traditional manufacturing. In particular, these types of business are likely to benefit from very highly skilled people and complex innovations.

Clearly this means that universities are well-placed to serve the UK economy of today. It also means that higher education is an important service export in its own right.

Meeting the needs of business

HEFCE’s funding for knowledge exchange through the Higher Education Innovation Fund (HEIF) aims to help universities form relationships with business, with a view to addressing specific needs. Over the last year, we have commissioned research studies to evaluate the effectiveness of present relationships – and plot a course toward new opportunities.

PACEC consultants have been evaluating the impact of our HEIF funding. Their report, to be published this Autumn, examines the types of current knowledge exchange partnerships and levels of satisfaction of businesses working with universities. These partnerships span manufacturing and services, and are focussed on specific industry sectors, particularly creative industries, health, engineering and materials and environmental technologies.

Businesses that universities work with are overwhelmingly intending to grow over the next 3-5 years. The vast majority have innovated in the last 3-5 years, with 79 per cent introducing a new product or service and 60 per cent a new process (compared to 20 per cent innovating in the overall population of UK businesses).

Half of companies had registered or applied for a patent in the UK. 79 per cent of businesses said they looked to help from universities at the initial stages of developing concepts and doing research, though 40 per cent saw universities as also helping at the other end of development, taking products to market.

Overall then, businesses engaging with universities are important for growth and innovation, and so likely targets for productivity improvement.

University-business links

Are these businesses satisfied that university links are helping them achieve their business goals? 90 per cent said that their interaction with their university partner was important, and almost all said links had been successful.

Interestingly, services businesses were more likely than manufacturing to say the link was critically important. Manufacturers were more likely to feel that they could have achieved the same goals by other means than via a university link (although they would have achieved these goals later, or with reduced scope or scale).

But manufacturers were more likely to say the link had been completely successful. High-tech and services said they had experienced the most benefits from partnerships, over manufacturing. Around 40 per cent of businesses working with universities saw a specific link between knowledge exchange partnerships with universities and their achievement of increased productivity.

Almost all businesses felt that universities had become better partners over recent years. Services were more positive than manufacturers about the change of culture in higher education.

Company size

PACEC also looked at size of company. 61 per cent of businesses working with universities surveyed had fewer than 25 employees (this includes spin-outs and start-ups originating from the university).

Large businesses tended to seek research and development and consultancy services. Medium companies were interested in recruitment and skills; and new companies sought incubation and enterprise support.

Networking was important to all. Growth in relationships with medium and small companies was notable in many higher education institutions, and medium-sized companies were most likely to report positive change in their attitudes to working with universities and to sharing ideas.

The power of flexible partnership

Overall our evidence suggests that universities are effective at attracting businesses that can benefit from partnerships, and adept at serving the needs of many different types of business – manufacturing and services and of varying sizes.

We need to consider further whether these existing links form a good basis for developing partnerships focussed specifically on productivity. Such partnerships would help the wide range of higher education contributions – graduate recruitment, skills, research and innovation – flow into the most dynamic parts of the economy, with greatest needs.

We are interested to hear more from across the higher education sector on specific partnerships for productivity, across different sectors of the economy and sizes of business, that are regarded by higher education and business as effective.